Since shopping and payments are like hand in glove, let’s look at the latest trends in US retail. It’s a rugged ride.
Struggling retailers list grows
More than 5,000 US stores closed in 2017 and the list of struggling retailers in the US is growing. Some of the names are iconic brands.
With $5 billion of debt, According to Bloomberg, Toys “R” Us is considering liquidating its bankrupt US operations. With 800 US stores, a closure would be a big loss of jobs. It’s Canadian operation also filed for bankruptcy, and the status of EU and Asian operations is unclear. As management struggles for a deal, its future is uncertain.
Bon-Ton declared bankruptcy on Feb 4 and has plans to close 52 stores. Macy’s added four additional store closures and plans to cut 5,000 jobs in 2018. Sears said it will close another 39 Sears and 64 Kmart locations between March and April 2018.
Walmart closed 63 Sam’s Club stores across the US in January. Abercrombie & Fitch will close 60 stores as leases come up for renewal and Footlocker has 110 stores scheduled to close.
Teen fashion accessories chain Claire’s Stores Inc has $2 billion of debt and is expected to file for bankruptcy any time. It’s likely a victim of e-commerce competition, the Amazon effect and the fickle tastes of teenage consumers.
Apparently, boomers aren’t buying Birks anymore as Walking Co Holdings Inc, the seller of Birkenstocks, filed for bankruptcy this week.
Best Buy will close 250 mobile phone stores this year. Texas women’s fashion retailer A’GACI entered bankruptcy protection in January and will close 49 of 76 stores.
US store closure stats
Through the third quarter of 2017, 6,752 stores were scheduled to close, excluding grocery stores and restaurants, according to the International Council of Shopping Centers.
“That’s more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008, during the depths of the financial crisis. Apparel chains have by far taken the biggest hit, with 2,500 locations closing. Department stores were hammered, too, with Macy’s Inc., Sears Holdings Corp. and J.C. Penney Co. downsizing. In all, about 550 department stores closed, equating to 43 million square feet, or about half the total.”
Clothing stores took the biggest hit with 2,502 closures, home entertainment 1,933, footwear 735, department stores 553, miscellaneous retail 415, bookstores 240, jewelry stores 165, and sporting goods with 155 closures.
The 11 states highest hit by closures and lost jobs between 2007-2017 include: Rhode Island -7.3%, West Virginia -6.7%, Ohio -5.9%, Vermont -5.7%, Minnesota -5.5%, Maine -5.1%, Connecticut -4.9%, Wyoming -4.4%, Virginia -3.4%, Pennsylvania -3.2%, and Alabama -3.2%.
Why so many retail problems?
Clearly, e-commerce has had a giant impact on bricks and mortar retail. Many retailers have adopted and grown their e-commerce business to compensate for lower in-store sales.
Some analysts blame fierce competition from Amazon and overseas sellers using the giant e-commerce platform to cut into US retail sales.
A Bloomberg article sees another big reason for US retail woes:
“The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.
The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.”
Moody’s estimates more than $1 trillion in high-yield debt for all industries will come due in the next five years. Bloomberg says the retail industry’s high-yield bonds are up 20%, reaching $152 billion. The impact on retailers trying to refinance debt, if interest rates rise, will be severe.
Retail real estate lenders risk
According to Real Capital Analytics, retail real estate lenders are also at increased risk. One-third of these loans are held by smaller US regional or local banks; 24% are commercial mortgage-backed securities; 15% by national banks; and 13% by insurance companies.
The double impact of local store closures and local bank losses would be considerable.
Store credit card concerns
Two indicators point to rising store credit card concerns.
Citigroup said collections on its retail portfolio are declining, partly because consumers stop paying back a card when a store closes. Synchrony Financial, the largest private-label card issuer, was forced to increase reserves in 2017 to cover potential loan losses.
Retail jobs are critical
An estimated 1.2 million store jobs were lost in the last recession, between 2008-2009. The number of retail jobs in 2017 dropped by 101,000 and shows signs of continuing to grow.
The US government estimates that more than 8 million lower-income people work in retail jobs as salespeople, cashiers, warehouse staff and customer support. These are jobs on Main Street and small-town America that can’t be easily replaced by e-commerce.
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